Is it really possibly that the dollar could lose so much value as to become nearly worthless? Does that mean we would have inflation as they did in Basil? What could people do to protect themselves from high inflation?
Possible, but unlikely, at least so long as the government retains power. Hyperinflation with a supported currency is really only possible with poor financial policy, and the Federal Reserve seems to be sufficiently independant to avoid that. Additionally, Americans tend to view inflation as bad, so populist politicians would be unlikely to intentionally cause it.
Well 2/3 of American dollars are held by foreigners, so theoretically they could all dump their money into the market and majorly reduce the value of the dollar, but it would have to be a pretty big conspiracy to make it worthless. More realistic is China dumping all the dollars that they have in their reserve, but that would hurt their biggest trading partner and probably start a war, so it’s unlikely.
To protect yourself, buy gold.
While it is possible, the system can be maintained for a long time due to the fact that it is a monopoly. When fiat currencies start to collapse, they are generally hastened by people fleeing to currencies that are still backed by gold. With none of those left, the system can be maintained longer than any fiat currency in history. Of course, that means the eventual collapse will be that much worse.
It is possible, but at least at this point in history I would not call it probable.
The scenario I imagine would be the US overextending itself militarily, and resorting to larger inflation to keep the military funded. Couple this with the baby boomers retiring and a Universal Healthcare plan, and they might inflate enough to cause serious damage.
This wouldn’t be the hyperinflation of Brazil, but a massive devaluing which would be felt, most especially by the poor in this country.
Since all humans (no matter which country they live in) have to obey economic laws, I think it’s certainly possible. We shouldn’t forget that the U.S. has already experienced worthless currencies (Continentals and Greenbacks). So historically, Americans are not immune to economic law.
Will it happen again? I hope not…no one can know the answer for sure.
You can protect yourself by owning gold & silver…as well as educating the people around you.
Why own gold and silver? Having had the good fortune to be born in the US, I have not experienced hyper-inflation, but wouldn’t any thing you own appreciate as the inflation occurred? The one thing you don’t want is money, but I would guess that real estate and stocks would increase at the same rate as gold. I can see that since gold could be a crude replacement for money, that it would out perform real estate, etc.
Gold and silver have been used as money for thousands of years. Paper money has come and gone, over and over, with a 0% success rate. (Those aren’t good odds if you’re a betting man). Hyperinflation always occurs, which is followed (eventually) by a return to hard money.
This is why you want to hold gold and silver, so you can own some real money that cannot be inflated away.
Gold would not be a “crude replacement” for our current system. In fact, it is the only viable alternative.
A return to gold does not mean that the electronic digits and paper receipts that we are used to have to disappear. It does not mean we all have to walk around with sacks of gold coins. It means each electronic digit and each paper receipt is 100% backed by a physical commodity like gold…thus preventing the constant inflation that we face today.
Hyper-inflation would only likely occur if resources of a nation were nationalized/socialized. If the U.S. dollar starts to hyper-devalue (lose value against other currencies quickly, ignoring gold entirely), it would cause U.S. based resources to fall in price against other currencies. These resources would include natural resources, but also include manufactured goods.
While our manufacturing base has fallen, we have not strip-mined the country of its natural resources, including water which is quickly becoming one of the most expensive natural resources in many markets. With a fall in the U.S. dollar, we may actually see exports exceed imports, as well as investment by foreigners into a newly developed manufacturing base (cars, cement, oil, food, etc).
The downside is that foreign goods would skyrocket in price, yes, but we only rely on many foreign goods today because the prices are low due to a still-strong dollar. Should foreign import prices move beyond the cost to produce the same good locally, we would likely see foreign imports slow down or cease in some cases.
I do believe there are still massive natural resources available in the U.S. States and controlled foreign States. Oil, gold, iron, and food products are there to be mined, grown or processed – if the incentive is there to produce them.
Note that this isn’t necessarily good for the middle income American. In a hyper-devaluing economy, the wealthy (in terms of money/credit available in non-dollar denominated currencies) would be even more powerful as they could purchase and own the manufacturing base, as well as the export system.
IMHO,
All oil in the world must be traded in US dollars, as I understand it. Hence, the world demand of dollars is high because everyone needs oil. Should OPEC decide to start taking Euros or Yen, then our dollar would collapse.
The future’s not looking too good for the petrodollar.
Iran, with a little help from Japan, and Venezuela are already headed away from the dollar and the others are spooked so we’ll see how much longer it can last.
As a side note, I think the new artwork showing up on our money is symbolic indeed: it shows the willingness of the government to tamper with the money supply more than they used to. They’re even redoing the penny now. Tell me. How does that stop stop counterfitting?
Working in I.T I am able to diversify my contracts and be paid in a number of currencies.
When the dollar goes down against the pound I do better as I cash in my pounds. When the pound isn’t doing so well I leave it in the bank (or move it into a high interest account in England) and let it accumulate and make sure I do some work in $ as well.
Generally I have found doing this is beneficial and if you have the oppotunity to I’d recommend it. The dollar slid today around 3% against sterling and last year it was as much as $2 to the pound for example.
It’s a bit of a hassle getting yourself set up, but if you have the will then it is worth it.
Wasn’t the dollar defined to be 21 per ounce gold for over a century, until Roosevelt in 1934 changed the definition to $35 per ounce, which held up approximately until Bretton-Woods was abandoned in 1971?
Well, it’s lost about 95% of its purchasing power since then! The current Obama/Bernanke regime might very well take care of the last 5%…
A handful of gold coins burried in the ground 1,000 years ago then corresponded to the price of a ship. If you find that same gold treasure today, and melt it down (ignoring the archeological value) you can still buy a nice sailing ship for what the pure metal is worth! That’s constant storage of value,a key definition of what could be used as money.
If a fiat currency is inflated by 2% a year, like many states do today (and I think Friedman advocated something like it), and if you dig down 1,000,000 dollar today, then after 1,000 years, the one who digs it up will find that it’s worth only 0.1 cent of a dollar!!! (1,000,000*.98^1000) And that’s assuming that the fiat scheme holds up for 1,000 years without any changes or sudden inflations boosts. And that’s unthinkable, since no fiat currency has survived more than 38 years (that’s since 1971) and it hasn’t been inflated by 2% a year, but on average about 8% a year (to its previous gold value definition)!
That’s the prime advantage of gold, that it is immune to monetary policies!